Bausch & Lomb halts eye solution shipments

Recall is second since February

ValBrickates Kennedy

NEW YORK (MarketWatch) -- Shares of Bausch & Lomb Inc. plunged Tuesday as the company temporarily suspended U.S. shipments of its ReNu with MoistureLoc contact-lens solution over reports that some users have contracted a type of eye infection that can lead to blindness.

The suspension, announced late Monday, triggered a flurry of analyst downgrades. Bausch
BOL, -16.67%
shares sank 17% to $47.66 in midday trade Tuesday.

Late Monday, Bausch said it decided to voluntarily suspend shipments of its popular product after being informed by the Centers for Disease Control that the agency, along with the Food and Drug Administration, was investigating 109 reports of a rare but serious eye infection called fungal keratitis.

Of the 30 cases that have been fully investigated, 26 patients reported using a Bausch & Lomb ReNu brand solution or a generic version of the product during the month preceding the infection.

"The CDC data released today are both troubling and perplexing, as there is an apparent disproportionate representation of U.S. manufactured ReNu with MoistureLoc in the underlying data," said Bausch chief executive officer Ronald Zarrella, in a statement late Monday.

Zarrella added, however, that "the source of these infections has not been determined. Based on our extensive testing, analysis and further internal reviews, and communications with leading experts, the available scientific evidence does not establish any type of ReNu solution as a cause."

"Nonetheless, in the interest of public health, we will voluntarily suspend U.S. shipments of ReNu with MoistureLoc while we pursue all appropriate steps to bring this investigation to a definitive conclusion," Zarrella added.

Fungal keratitis is a painful inflammation of the cornea that can lead to blindness in some cases. The infection can appear as a result of eye injury, improper use of contact lenses, or contaminated contact-lens products.

Bausch said the ReNu products in question had been produced at its Greenville, S.C. plant.

More problems for ReNu products

Monday's suspension is the second time Bausch has run into trouble with its ReNu products this year. According to the FDA, Bausch voluntarily suspended shipments of ReNu products to Singapore and Hong Kong in February after they were suspected of fungal keratitis in contact wearers in those areas.

According to analysts at Robert W. Baird & Co., contact lens care products make up about 23% of Bausch's annual sales, while contact lenses account for another 30%.

The news also comes on the heels of the eye-care company delaying its 10-K filing with the Securities and Exchange Commission, investigations into allegations of misconduct at its Brazil unit and improper sales practices at a Korean vision-care joint venture.

Analyst reaction on Tuesday to the news was somber.

Credit Suisse analyst Ken Kulju, who already had an underperform rating on Bausch, cut his price target on the company to $57 a share from $71 and pared his 2006 and 2007 earnings forecasts by 13 cents a share.

"We are assuming that ReNu MoistureLoc will be off the market for about six months, with the brand also taking a considerable market share loss to competitors," Kulju wrote in a note to clients.

J.P. Morgan was more pessimistic.

"Our immediate concerns are obvious: Bausch is suspending sales of its flagship product within the company's most profitable segment," J.P. Morgan analyst Michael Weinstein wrote in a note to clients, while lowering his rating to underweight.

Weinstein added he was suspending estimates for the company over concern that the recalls might scare consumers away from not only its popular ReNu products but also its other lucrative contact lens lines.

"For Bausch, halting lens care sales in the US represents a worst case scenario of sorts, reminiscent of J&J's 1982 Tylenol scare in which product tampering led to 7 deaths," said Weinstein. "Once we gain a clearer picture of the impact on Bausch's Lens Care franchise and the associated ongoing impact on B&L earnings, we will update and reissue a B&L model," he added.

In a statement on Monday, Bausch said that the recalled product generated sales of about $45 million in the U.S. in 2005, but Piper Jaffray analyst Steven Hamill said he thought that underestimated the company's exposure. In a note to clients, Hamill pegged it at closer to $55 million to $60 million.

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